Since the current global recession began in 2008 the US dollar has not only fallen in value but has also suffered a decline in prestige. Many nations are seriously discussing replacing the US dollar as a reserve currency. While the dollar declines against most major currencies China and other nations with emerging economies are calling for an end to the greenback’s dominance in global trade. Venezuelan President Hugo Chavez, no friend of the United States, stated Saturday that Venezuela, Russia and Iran have proposed replacing the dollar as the currency used for the oil business. Chavez stated, “We’ve been talking about this in OPEC. Venezuela agrees and there are other countries, such as Iran and Russia that have also proposed this idea.”

China’s Currency Undervalued

China has joined other nations and is proposing replacing the US dollar with a basket of currencies. Many Middle East nations involved in the oil trade support the idea. Instituting a new reserve currency would pose economic, diplomatic and economic challenges which would likely take years to resolve. China has undervalued their currency since 1995 making their products cheap in the US but at the same time putting US products out of the reach of Chinese consumers.

Concerns About US Debt

China enjoys a huge trade surplus with the US that creates growth and millions of jobs in China. Unfortunately that same trade surplus creates huge deficits and unemployment in the US. Massive US deficits caused by the financial meltdown and the bailouts have put downward pressure on the dollar in currency markets. Chinese officials have expressed concerns about rising US debt.

S American Nations Call For Dollar to be Replaced

At a meeting of Bolivarian Alternative for the Americas (ALBA) participating nations announced plans to create a single currency which would replace the US dollar. Participating nations include Bolivia, Cuba, Ecuador, Nicaragua, and Venezuela. A Russian delegation also attended the meeting. Russia has been in the forefront of the move to replace the US dollar as a global reserve currency. At the present time the role of the US dollar as a reserve currency seems relatively secure but the growing movement to replace the dollar leaves the currency’s future in doubt.

Quick Forex Tip: Euro currency trading requires a lot of research and investors must keep track of economic information from the twelve member nations. The economy of just one nation can affect the euro’s exchange rate.  In 2010 political uncertainty and deficit concerns about Greece caused the euro to fall considerably in global forex markets. Euro currency trading can be exciting and very lucrative for investors who have done their homework.

The US dollar rose to a four month high against the Japanese Yen as concerns about the Japanese economy and possible political instability limited forex opportunities provided by the Yen. More bad news is expected from the United States as Friday’s Non Farm Payroll report is expected to show job losses in excess of 697,000 jobs in February. The US housing market remains troubled and one report said that 1 in 12 homeowners was in foreclosure.

Investors Seek Higher Yielding Currencies

Wall Street rallied on Wednesday causing the dollar to pare earlier gains against the British Pound and the Euro. Many investors took advantage of the forex opportunities offered by higher yielding currencies such as the Aussie dollar. Most economists believe that the worst of the economic crisis is far from over which is expected to bolster the US dollar in the near future. Michael Woolfolk of The Bank of New York-Mellon stated, “There’s been profit taking on long dollar positions, not unusual ahead of large events, but this shouldn’t be mistaken for a reversal in the longer-term dollar rally.”

Risk Appetite Returns

The Euro traded at $1.2550 and the British Pound traded at $1.4110, while the dollar traded at $1.4110 against the Yen. Investors were dumping the Yen amid fears of a deepening recession and possible political instability in Japan. The slight return to risk appetite provided forex investment opportunities for traders. This news is expected to boost the dollar in the near future. Chris Turner on ING stated, “The markets have a view that Asia is going to perform just as badly maybe as Europe and the U.S. this year and there’s a view that dollar Asia en-masse should go higher.”

Dollar Could Break 100 vs Yen

Many analysts believe that the US dollar could reach above 100 Yen within the next two days. Boris Schlossberg of GFT Forex stated, “When the market approaches a major psychological level, it’s hard to prevent it from breaking, and that’s why I think we’ll see the dollar break 100 yen over the next session or two.”

Good News From China

China announced a stimulus package designed to benefit infrastructure and manufacturing. China also announced three straight months of growth. Markets reacted and forex opportunities increased for traders and investors. Forex traders will be watching the ECB closely for any signs of monetary policy beyond expected rate cuts.

The slight return to risk appetite is bound to be beneficial to investors in both equity and forex markets. Even the slightest return to risk appetite means more forex opportunity fore investors.

Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.

Bailout Funds to be Used For Capital Injection

The US Treasury is backing away from plans to use the $700 billion dollar bailout funds to purchase toxic mortgage related debt from troubled financial institutions. Treasury Secretary Paulson said that he preferred a second round of capital injections to help financial institutions weather the worst financial crisis in decades. Paulson told a news conference, “Our assessment at this time is that this (the purchase of toxic assets) is not the most effective way to use funds.”

Dismal Data From Eurozone

To add to the doom and gloom the Eurozone posted abysmal economic data suggesting that the world economy was headed for a recession. Central banks are expected to cut rates even further in an attempt to stimulate credit markets. The depressing data has investors and Forex traders watching currency markets for Forex opportunities.

IMF Nixes Iceland Bailout

Throughout the world efforts to rescue national economies and troubled financial institutions appeared to be in danger. The International Monetary Fund withheld official backing for a $6 billion bailout plan for Iceland, putting loans to Iceland at risk. British bank Barclays’ biggest shareholders have threatened to vote against a plan to raise 7 billion pounds of capital unless it improves terms of the deal.

Proposed Bailout For US Auto Industry

In the US congressional Democrats are seeking a bailout for the struggling auto industry, a move opposed by the Bush administration. Treasury Secretary Paulson said that many non financial companies may need cash infusions but saw “implementation difficulties” aiding companies that are not federally regulated. General Motors, Ford, and Chrysler are seeking $25 billion from the government.

US Debt Highest in History

Many countries are now asking the question of how much help governments can give. In the US the national debt is already at its highest ever and new demands for government help could easily overwhelm the US government which is already facing record deficits. At present the dollar is doing amazingly well on Forex markets and continues to offer the same Forex opportunities that it always has. That could easily change if the world economy continues to slide towards a recession.

US and Europe Post Job Losses

Both the US and Europe are in serious trouble with job losses and frozen credit markets despite massive injections of capital. To top it all off the World Bank is predicting that global trade will contract in 2009 adversely affecting exporting countries.

Investors Looking at Forex Opportunities

Many investors are taking a new look at Forex markets and the Forex opportunities that they provide. Forex markets are the world’s largest with $2 trillion dollars being traded daily and still provide traders and investors with plenty of Forex opportunity not found in stock and commodity markets.

Quick Forex Tip: Political conditions play a major role in global currency trading. Political instability can cause a currency to lose value. Recently political problems and deficit concerns in Greece caused the euro to fall in global currency trading centers. Market psychology although difficult to define can also affect market perceptions and can either help or pressure currencies.